Millions Of US Taxpayers Will Feel The AMT Pinch, Say Studies

by Mike Godfrey, Tax-News.com, Washington

14 September 2004

Tens of millions of American taxpayers will be snared by the Alternative Minimum Tax unless legislative changes are made to the tax code, recent research has warned.

According to researchers at non-partisan think-tanks, the Tax Policy Center of the Brookings Institution, and the Urban Institute, if current laws are not amended, almost 30 million will fall into the AMT net by 2010.

If temporary tax cuts enacted in 2001 and 2003 are extended, this number will grow to 40 million by 2014 and the AMT will account for 11% of federal tax revenues, studies show.

For some, the AMT is already beginning to bite, with Tax Policy figures suggesting that those falling under the regime this year will pay on average $6,000 more in tax.

The AMT was introduced to prevent investors and the wealthy from sheltering too much of their income from taxes. After factoring in a standard deduction which this year is $58,000 for a couple and $40,250 for a single person, a special tax rate of 26% is then applied on the first $175,000 and a 28% rate applied on income above this amount.

The total is then compared to the tax paid under the regular method and the higher amount is what is paid.

However, in their wisdom, the lawmakers who introduced the tax omitted to index it to inflation which means AMT is beginning to affect more and more middle income taxpayers.

Currently, the highest incidence of AMT is to be found in the $200,000 to $1 million income bracket. But by 2010, more than half of tax returns with incomes between $75,000 and $100,000 will be affected, the think-tanks have predicted.

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